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Rachel Reeves is announcing £15bn for trams, trains and buses outside London as she launches a charm offensive to persuade fractious Labour MPs that her spending review will not be a return to austerity.
The chancellor has begun meeting groups of backbenchers to argue that the money, part of a £113bn investment in capital projects over the rest of the parliament including transport, homes and energy, would only have happened under Labour.
Just three Whitehall departments are still to agree their multi-year budgets with the Treasury before the spending review, the Guardian understands, with the home secretary, Yvette Cooper; the energy secretary, Ed Miliband; and the housing secretary, Angela Rayner, holding out.
The chancellor wants capital spending to be at the centre of the government’s narrative at the conclusion of the review next week in an acknowledgment that MPs, many of them in marginal seats, need a better economic story to address rising discontent among the public.
With ministers looking for ways to combat the electoral threat of Reform UK, Labour officials are attempting to refocus anxious backbenchers away from expected cuts in day-to-day spending, and on to capital budgets. “We’re investing to rebuild,” one said.
The spending review will be a difficult one for the government, however, with the Institute for Fiscal Studies saying the chancellor faces “unavoidably tough decisions” as the demands of funding for the NHS and defence raise the prospect of deep cuts elsewhere.
“We have a big battle with how to frame this,” one minister told the Guardian. “The big risk is that people get the [spending] review, turn to the back of the book and see the minus numbers and the story is big cuts.
“But the difference is what it would have been without massive extra investment that came from the budget, or the capital spending which is huge. It will be a job to set that out. I think a lot of cabinet ministers – perhaps all apart from Ed and Yvette – do get that.”
Reeves’s allies argue that departments will receive £300bn more than the Conservatives had planned as a result of the decisions she took in the autumn budget, such as loosening the fiscal rules on capital spending. This includes £190bn more on day-to-day spending over the parliament.
Much of the extra £113bn in capital spending will be in areas outside the south-east of England, and Reeves has confirmed Treasury investment rules will be rewritten to give extra weight to schemes that increase productivity in the Midlands and the north.
In a speech in Greater Manchester on Wednesday morning, she is expected to say this represents a “step change in how government approaches and evaluates the case for investing in our regions … to make sure that this government gives every region a fair hearing when it comes to investments”.
She will add: “A Britain that is better off cannot rely on a handful of places forging ahead of the rest of the country. [The] result of such thinking has been growth created in too few places, felt by too few people and wide gaps between regions, and between our cities and towns.”
Government sources said that some departments that settled with the Treasury the earliest had some of the harshest settlements and thus faced the biggest cuts, including the Foreign Office and the Department for Culture, Media and Sport.
Some departments, including Defra and education, settled early this week. The environment secretary, Steve Reed, is said to have sealed his own settlement with capital cash for flood defences.
One cabinet source who had settled in recent days said they felt there was a greater recognition in the Treasury of the pressure departments were under and that most negotiations with Darren Jones, the chief secretary to the Treasury, had been cordial.
The Ministry of Justice, under Shabana Mahmood, one of the first to settle so that Mahmood could announce the prison funding, is being held up to ministers as an example of a department that had a clear realistic ask and got much of the substantial funding it had asked for.
However, both Miliband and Cooper are said to have had fiery meetings with Jones, asking to deal with Reeves directly. Of those still to settle, Cooper has been fighting the hardest against what she sees as an impossible settlement particularly on policing – with the pressure to both increase police numbers, halve knife crime and violence against women and girls, and deal with early releases.
Six police chiefs publicly warned last week that the funding gap meant that Labour could miss its manifesto promises.
On Tuesday night it emerged Mark Rowley, the head of the Metropolitan police, and other senior police officers had written to the prime minister warning him that they would face “stark choices” about which crimes to investigate if the Treasury pushed ahead with cuts.
The Times reported that in a letter sent on Friday – and signed by Rowley, Gavin Stephens, the head of the National Police Chiefs’ Council, and Graeme Biggar, the head of the National Crime Agency (NCA) – they wrote: “We are deeply concerned that the settlement for policing and the [NCA], without additional investment, risks a retrenchment to what we saw under austerity. This would have far-reaching consequences.”
Miliband has also been locked in a struggle with the Treasury, including over funding for a “warm homes” insulation plan that insiders believe is set to be cut. One cabinet minister pointed to other areas that had received investment including nuclear and carbon capture. “You can’t get everything,” they added.
The main fight for Rayner is over the affordable homes budget, given that both she and Reeves had promised a generational shift in social housing when £2bn for the programme was announced before the spring statement – then described as “down payment” on further funding to be announced at the spending review – which now does not look to be forthcoming.
Among the regional transport projects set to receive government backing next week are some that were promised by the Conservatives, but for which the money was never allocated, potentially including a new railway between Manchester and Liverpool.
The £15.6bn package announced on Wednesday is expected to include £2.4bn for the West Midlands to fund an extension of the region’s metro from Birmingham city centre to the new sports quarter, and £2.1bn to start building West Yorkshire Mass Transit by 2028.
Greater Manchester will receive £2.5bn for projects including new tram stops in Bury, Manchester and Oldham and an extension of the tram network to Stockport.
A £1.5bn investment in South Yorkshire will include £530m to renew the region’s trams, while the East Midlands will receive £2bn to design a new mass transit system between Derby and Nottingham.
